Abstract

In three experiments we studied the extent to which theories of decision-making andmemory can predict people’s preferences. Studding risky decisions, we aimed to answerquestions about human preferences, prompted by similarities between the leadingeconomic theory Expected Utility Theory (EUT) and the leading psychological theory ofhuman choice under risk - Prospect Theory (PT). People’s behaviour in the face of riskimplies that they judge and weight the probability of risky events in characteristic waysthat deviate from EUT. Nonetheless, both EUT and PT frameworks share a commonassumption: people’s risk preferences and decisions under risk and uncertainty areindependent of task. Accordingly, we studied (i) the lability of human preferences andtheir relation to choice justifications given in risky decision-making scenarios, (ii) thedynamics of preference formation for choice with monetary gambles and (iii) the limits ofexisting theoretical accounts (e.g., UT and PT) by contrasting them with a new theory ofrisky choice based on the impact of context, complexity and prior choices. The resultsof all three experiments are not anticipated by EUT, PT or experience-based decisionresearch (Hertwig, Barron, Weber, & Erev, 2004).We found evidence that people donot have underlying preferences for risk; instead, context, complexity and prior choicesdetermine preferences even when the utilities (risk and reward) of alternative options areknown